We should be sceptical about the latest Gross Domestic Product (GDP) figure, BNZ’s head of research Stephen Toplis says, as “GDP outturn delivered what it promised, namely more noise than signal”.<\/p>\n
On Tuesday, Statistics New Zealand announced that the GDP in the September quarter was 1.1%<\/a> which outstripped the gains forecasted by the market and the Reserve Bank’s (RBNZ) economic modelling ‘Nowcast’ forecast<\/a> of 0.9%.\u00a0<\/p>\n Toplis said over the last five quarters – starting with 2024’s third quarter, “the economy has allegedly plummeted 1.3%, stalled at 0.1%, soared 1.1%, crashed 1.0% and soared again in Q3 2025 this time by 1.1%”.\u00a0<\/p>\n “Does anyone feel this is a true reflection of what happened to them? And do we really think we are currently growing at the same pace as China (1.1% for Q3) and three times that of Australia (0.4% for the quarter)?”<\/p>\n Annual movement in activity<\/p>\n Toplis said the best way to make sense out of what is happening is to look at the annual movement in activity.<\/p>\n “According to this quarter’s data, activity was 1.3% higher than this time last year. It was the first annual increase reported since Q2 2024 and suggests we are, at least emerging from a protracted recession. It also feels about right.”<\/p>\n ‘Early days’<\/p>\n Toplis said there were clear indications falling interest rates were having an impact.\u00a0<\/p>\n “Consumer spending on durable goods was up .7.3% on year earlier levels.<\/p>\n “And residential building while still down 0.7% on last year, will, by Q4, be solidly positive, ending a three year run of negatives,” he said.\u00a0<\/p>\n “The impact of interest rates also shows up in the production data with rental, hiring and real estate services up 1.7% on year earlier levels largely as a function of rising turnover in the housing market.”<\/p>\n Toplis said it’s only early days in terms of the positive impact that comes from the interest rate stimulus.\u00a0<\/p>\n “This gives us some confidence that the annual GDP increase will forge significantly higher over the next twelve months.”<\/p>\n ‘Some way to go’<\/p>\n Toplis said indicators such as the performance of manufacturing index (PMI) and performance of services index (PSI) were still weaker than the BNZ economists would expect if economic momentum is to pick up.\u00a0<\/p>\n Anecdotal feedback, Toplis said, from the broader retail sector about Christmas spending is “far from ebullient”.\u00a0<\/p>\n “The labour market too is still struggling, and dairy prices are in freefall. To cap things off mortgage rates have started to edge higher.”<\/p>\n How does this impact the Official Cash Rate?<\/p>\n In November,\u00a0the Reserve Bank (RBNZ) cut the Official Cash Rate (OCR)<\/a>\u00a0to 2.25% from 2.50%.<\/p>\n At the time, the RBNZ said future moves<\/a> would depend on how the outlook for medium-term inflation and the economy evolve – but it didn\u2019t specifically say the next move would be down.<\/p>\n On Thursday, Toplis said “it is clear there is some way to go before we are out of the woods. It is for this reason that we continue to believe the RBNZ will be in no hurry to raise the cash rate”.<\/p>\n Toplis said the BNZ economists believed the RBNZ Governor Anna Breman “will already have known that this quarter’s GDP was going to print large when she made her recent comment that the economy was evolving largely as expected while at the same time intimating there was no need for near term hikes in the cash rate”.\u00a0<\/p>\n \u2018The rest is noise\u2019<\/p>\n ANZ senior economist Matthew Galt said at face value, the upside surprise to the 0.4% September quarter GDP forecast made by the RBNZ in its Monetary Policy Statement (MPS) suggests the output gap [indicating spare capacity in the economy] is \u201cnow a little narrower\u201d than the RBNZ’s Monetary Policy Committee had assumed, \u201cwhich would at the margin reduce their assessment of how disinflationary the current state of the economy is\u201d.<\/p>\n \u201cHowever, the RBNZ\u2019s estimates of the output gap are based on a wider suite of metrics than just GDP, and their Q3 estimate of -1.9% implied considerable spare capacity, of which the upside surprise today will have absorbed only a small portion.\u201d<\/p>\n Galt said: \u201cGiven recent quarter-to-quarter volatility, our take is that about half the strength in Q3 is signal while the rest is noise. We suspect the RBNZ will view it much the same way.\u201d<\/p>\n \u201cThe RBNZ<\/a> sees the OCR staying at its current level for some time – a message reinforced by the Governor\u2019s comments<\/a> earlier this week – and it will take more than today\u2019s GDP data to materially shift that view.\u201d<\/p>\n \u201cThe RBNZ will assess GDP in the context of wider measures of capacity pressures and activity, which have been improving, but not uniformly.\u201d<\/p>\n Galt said overall, Thursday\u2019s GDP data would give the RBNZ confidence that the economy is turning upwards, but \u201cthe RBNZ has been careful not to put too much weight on a single GDP print, given volatility\u201d.<\/p>\n \u2018GDP alone is unlikely to be the silver bullet to bring hikes forward\u2019<\/p>\n